I have been wrestling with this problem for a few days and I have come to a solution for myself. It may help others. I have been working with XP SP3 and both a brand new Zune 120 and a Zune 80.
I would get a text balloon at the bottom when installing the driver that said "your device may not work properly until you restart the computer". I did and did over and over again with no luck. In the device manager, the Zune was shown with a yellow exclamation point next to it and the error code was 18 which simply said re-install the drivers and try again. I did again and again. Frustrated.
While browsing around for anything about anything, I figured that I'd just try to install the older drivers (v2.5). Why not? Though I already had them on my computer because the Zune 80 is about a year old, I also found them online here (http://www.zuneboards.com/forums/gen-2/32010-zune-v3-1-drivers.html). Actually, both the 3.1 and 2.5 drivers can be found by following that link.
Anyway, I manually installed the 2.5 drivers, restarted the computer, and things were recognized just fine. Great. Partially satisfied I decided to try the 3.1 drivers again at the risk of going back to square one. After I went to the device manager and updated the drivers manually, everything worked great.
The device is now recognized by the XP machine with the 3.1 driver. I can't imagine that this will fix everybody's problem but I hate the "un-install and re-install everything" answer. Try this with the drivers first.
